Sayonara, Silver. Thanks for the Memories.

I knew this day had to come. My trading setup for silver has just flipped to bearish. I’ve held silver since last May, and the trade has worked very nicely. But alas, my setup based on trader positioning in the Commitments of Traders reports indicates it’s time to let go, hard as that might be.

The setup works by trading on the same side as the commercial traders when their futures and options positions in silver hit specific points of bullishness and bearishness. The setup works with no trade delay - meaning I executed the trade as of the open this morning, Monday, Feb. 25.

Interestingly, my setups for gold and gold stocks remain in bullish mode. (See the table below for some more details.) My gold setup trades on the same side as the large speculators in gold futures and options, and right now they are super-bullish. Meanwhile, my setup for the HUI Gold Bugs Index and XGD Canadian Gold iShares, based on fading the small traders, is also still bullish, as it’s been since last May.

What to do with such contradictory signals? Of course, silver and gold tend to move in the same direction. But they usually don’t do so in the same proportions. For example, lately silver has outperformed gold. The data may now be suggesting that’s about to cease happening and a weak period is in store for silver in relation to gold. As well, I should note that my various setups work on different timeframes with varying levels of sensitivity to the COTs data. Each one was optimized and tested for statistical robustness with the goal of achieving a good probability of a profit over the life of the signal. Signals from setups in a broad market like the precious metals often don’t all occur at the same time for these reasons.

My own strategy was to sell my position in iShares Silver (SLV) and hold onto XGD. I suppose I could have shorted silver and hoped to make a profit on the difference - with one position effectively hedging the other - but my choice was to do what works best in my broader portfolio.

Also interesting: my platinum setup has also flipped to bullish. As the table below shows, this setup works with an eight-week trade delay, meaning execution would be for the open April 21. Important caveat: I’m still in the midst of revising this setup as part of a yearly process of revisiting all my setups. At the moment, the platinum setup is one I don’t trade off the COTs data alone because of its inferior statistical robustness. I hope to come up with a better one soon. For now, I consider the signals there as interesting to watch, but not good enough to trade.

My other setups have all remained the same and gave no new signals last Friday. Visit my free blog COTs.Timer.Blogspot.com to see my other signals for equities, currencies, energy and Treasuries and to learn more about how my system works. Good luck this week!

COTS SIGNALS FOR 22-FEB-08

NOTES TO TABLES

1. Visit COTsTimer.Blogspot.com to see how I trade new signals.
   
   
2. A “renewed” signal is when a market is already on a buy or sell signal, and traders again register an extreme net trading position in the same direction. The results in this table are based on acting only on new signals.
   
   
3. The COTs Timer Ratio is my reading of the bullishness or bearishness of traders from the latest COTs report. A reading of 1 or more means a buy signal for the commercial traders or a sell for the large specs and small traders. A reading of -1 or less means a sell for the commercials or a buy for the large specs and small traders. The ratio is based on the traders’ net percentage-of-open-interest position compared to the position’s moving average divided by the number of standard deviations I use for this setup.
   
   
4. In parentheses are the dates of the COTs report that gave this signal.
   
   
5. Past return using the signals of my COTs Timer system, starting from a baseline 100. This is the theoretical return from buying the security on a buy signal and shorting it on a sell signal.
   
   
6. Past return from buying and holding the underlying cash market, starting from a baseline of 100.
   
   
7. Ratio of the COTs Timer return versus the underlying market’s return.
   
   
8. This column shows how many weeks the trade was delayed to maximize past results and statistical robustness. For example, "0" indicates that the trade was executed for the open on the Monday after the COTs report was issued. In case of holidays, calculations are based on the weekly open price. In my own trading, in case of holidays, I execute trades for the open on Tuesday.
   
   
9. The group of traders that had the best historic return in this market. My signals are given when this group reaches specific extreme levels of bullishness or bearishness. Unless otherwise noted, my system trades in the same direction as the commercials and fades the large speculators and small traders.
   
   
10. My gold setup trades on the same side as the large speculators. It goes long when the large speculator net percentage-of-open-interest position is -1.2 standard deviations below its five-week moving average or above. It sells gold short when the net position is -1.2 or more standard deviations below its five-week moving average.
    
    
11. Signals for the iShares Canadian S&P/TSX Global Gold Index Fund (XGD trading in Toronto) are based on the gold COTs data.
    
    
12. My copper setup trades on the same side as the small traders.

Alex Roslin

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Disclaimer: This report isn’t meant as financial advice or a recommendation to buy or sell any security. Please do your own homework before trading. My system isn’t for everyone, involves substantial risk and has experienced large drawdowns in some past trades. Past results are no guarantee of future profits. I’m not a certified financial advisor. While I consider my information to be reliable and accurate, I make no guarantees. Please see COTsTimer.Blogspot.com for other disclaimer information.